LTL Fuel Surcharges: A Helpful Guide

By July 12, 2018 Contract Negotiation, Invoice Auditing, News

Millions of businesses around the world rely on less-than-truckload (LTL) shipping for their logistical needs. LTL shipping offers freight service at low costs, making it a great choice for shippers looking to move bulk products at attractive rates. However, like other shipping options, LTL shipments can incur a number of additional surcharges.

These accessorial charges can quickly add up on LTL shipments, yet it’s not always clear what surcharges are being applied to your shipments and when they are being applied. Many shippers simply don’t pay close enough attention to their shipping invoices to see the significant impact that accessorial charges have on their overall shipping costs.

In order to shed some light on this topic, we’ll share some details about important surcharges that can be applied to your LTL shipments. We’ll break down what these charges are, when they are applied to your shipments, and provide some helpful insight into ways to reduce or eliminate surcharges altogether.

What are Shipping Surcharges?

Shipping surcharges are fees that are added to a shipment by carriers as a means of offsetting costs or charging for an extra service. Shipping surcharges can be applied for a wide array of services and extra handling costs. Nearly all special delivery requirements, including Saturday delivery and even residential delivery incur a shipping surcharge. Different types of shipping surcharges are often added to the same shipment, leading to a substantial increase in the cost of the shipment.

Despite the impact on the cost of shipping that surcharges can have, many merchants and businesses fail to accurately assess how shipping surcharges are affecting their shipping costs. A contributing factor to this is the vague way that surcharges are invoiced, making it difficult for shippers to discern what specific surcharges have been applied and what the rate for the surcharge is.

Surcharges often appear on an invoice as a service or handling fee. Identifying what you are paying in surcharges is made even more difficult by the fact that surcharge pricing and naming varies among carriers, and carriers often apply surcharges to a shipment after it has been accepted. This highlights one of the primary challenges shippers face in quantifying and understanding the role that surcharges play in their shipping costs.

What is a Fuel Surcharge?

Fuel surcharges are fees that are widely applied by carriers to shipments within their network. Simply put, fuel surcharges are used to offset the cost of fuel. This charge is in the form of a percentage that is then applied to the base shipping rate. Each carrier determines the fuel surcharge in their own way, so fuel charges vary between carriers. Carriers also reserve the right to change the fuel surcharge at any time, including how it is calculated.

Carriers use fuel surcharges to maintain profit margins if fuel costs rise. This makes sense, given that fuel represents the second largest expense for carriers. Because most shippers are in a long-term contract with carriers, the carriers must be able to account for rising costs of fuel over the course of that contract in order to maintain a profit. Major carriers typically update their fuel surcharges weekly, and calculate fuel surcharges based on the U.S. On-Highway national average for a gallon of fuel, which is provided by the U.S. Energy Information Administration.

LTL Fuel Surcharge

If you are shipping through an LTL carrier, it is almost certain that you are being charged fuel surcharges. LTL carriers apply fuel surcharges to almost every shipment, and they base their fuel surcharges off of the on-highway average cost for a gallon of diesel fuel, the same way they calculate it for other shipment types.

LTL shipments tend to have a much higher fuel surcharge applied to them. LTL fuel surcharge costs vary between carriers, as each carrier calculates theirs differently. For example, FedEx LTL fuel surcharge information can be found here, while the current UPS LTL fuel surcharge percentage can be found here. Although they are based on the same fuel data provided by the government, they may be different due to unique calculation methods that each carrier uses.

For shippers that utilize LTL networks, fuel surcharges represent a substantial portion of their total shipping costs. As such, it is important to explore avenues to reduce these fees. In order to do this, the most important tool that a shipper can have is a means of collecting comprehensive data on all of their shipments.

By doing so, they can quantify exactly how much they are paying in fuel surcharges per package. Once they have this information, a shipper can leverage that data to negotiate a more favorable pricing contract with their carrier. For example, a carrier may reduce fuel surcharge pricing on LTL shipping for a business in exchange for a higher base contract cost. If you know how much you are paying in fuel surcharges, then you can accurately determine if this would drive down your total shipping costs.

Additional LTL Shipping Surcharges

Although fuel surcharges are the most common accessorial fee applied to LTL shipments, there are a number of other fees that can be added to your shipping costs as well. Because these surcharges are often added onto your invoice after the shipment has been made, they can be difficult to anticipate or monitor. It is important to remember that, like fuel surcharges, many other accessorial fees can be negotiated down with your carrier. This can represent substantial cost savings for shippers that incur these fees frequently.

Lift Gate Surcharge

A lift gate surcharge is applied by LTL carriers for shipments that require the use of a lift gate. When calculating your base rate for LTL shipments, carriers assume that the destination address has a loading dock that your shipment can be unloaded on. Addresses that don’t have a loading dock require the driver to use a lift gate to lift or lower packages for delivery.

The lift gate surcharge is a means of offsetting the cost for both the lift gate and time it takes for the special handling of the package. Lift gate fees vary between carriers. If you find that you are frequently being charged a lift gate surcharge, you may consider negotiating a more favorable rate with your carrier of choice to reduce these fees.

Oversize or Extreme Length Freight Surcharge

A handling surcharge is applied to shipments that contain very large packages. Typically, shippers will encounter these fees if the packages they are shipping are 12’ in length or greater. (Note: some carriers are starting this charge at 9’ now.) This fee is called different things by different carriers, including an oversize item surcharge or extreme length freight surcharge. The cost of this surcharge also varies between carriers. In order to accurately track when you are being charged these, you may consider relying on a third-party logistics provider that can provide detailed analysis on your invoices.

Residential Surcharges

As the benchmark report demonstrated, residential surcharges are very common. Residential surcharges are applied by LTL carriers on shipments that are delivered to a residential address. Deliveries to homes are considered residential deliveries by carriers. This is true regardless of whether a business operates out of the same structure.

UPS considers a residential address a house that doesn’t have a publicly accessible address. Because residential delivery fees can be substantial, shippers that use LTL carriers may consider transferring the package to another carrier or delivery network before final delivery to a residential address.

Limited Access Charges

LTL carriers can apply a surcharge for any shipment being delivered to an area that is deemed to have limited access. This can often be difficult for shippers to know prior to shipment. This fee can apply to a wide range of delivery areas, from construction sites to military bases, airports, or piers.

If you are frequently incurring a limited access charge, you should consider negotiating a reduction in these fees with your carrier. For example, if a high proportion of your shipments go to an area with limited access, like a military base, your carrier will probably work with you to reduce or eliminate the charge.

Additional Services

There are a large number of additional services that can incur surcharges on LTL shipments. Carriers typically apply a surcharge to any shipment that requires additional handling or services, so the range of surcharges that can be applied to packages is necessarily large.

Services that often incur a charge are scheduled pickup services, signature requirements, deliveries into a building, or deliveries that require the driver to take a payment (Cash on Delivery). Each carrier will either publish their complete list of accessorial fees on their website or provide them to shippers upon request.

Other Factors That Affect LTL Shipping Rates & May Cause Increases

There are other factors that can contribute to shipping rate increases that aren’t considered surcharges. Although these are not surcharges, shippers should still be mindful of these factors when determining overall shipping costs.

These factors include shipping mode, freight type, and freight class. Shipping mode can have a substantial impact on LTL costs. Many carriers offer one, two, or even several tiers of expedited shipping. Each of these tiers has a cost increase associated with it, resulting in a much higher base shipping price.

Freight type can have an impact on your base shipping costs as well. Freight that is hazardous or fragile, for example, will have higher shipping rates because they must be handled differently. Alongside freight type, freight class is worth paying attention to for shippers. A shipment’s freight class is primary based on the freight density of the shipment. Shipments that have less density, or pounds per cubic feet, are considered a higher freight class and charged at a higher rate.

Shippers can often negotiate more beneficial freight class ratings with their carrier. This is referred to as Freight All Kinds (FAK) and allows shipments to be rated at a class that is lower than the actual class.

Summary

For businesses that rely heavily on LTL shipping, being aware of what surcharges you are incurring on your shipments is crucial to understanding your total shipping costs. This is because shipping surcharges are frequently added onto a shipment after it has been released to a carrier, making surcharges difficult to track and quantify for shippers.

The good news is that the amount you are paying in surcharges can probably be reduced by negotiating with your carrier. Many shippers aren’t aware that carriers are willing to negotiate reductions for surcharges. Central to any negotiation strategy with a carrier is to first know exactly how much you are paying for surcharges, what those surcharges are, and when they are being applied.

Shippers may consider outsourcing this to a third-party logistics provider that can track each shipment, including its dimensions, real weight, billable weight, and any surcharges that were applied to the shipment. This information can then be leveraged to pursue cost reductions in the surcharges that have the greatest impact on your total shipping costs.

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Author Shipware Admin

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